Those who haven’t taken a moment to think about how a trust can pass on their legacy to loved ones after passing on, may eventually be making a vital mistake. Trusts are an impactful component of any estate plan, and it a influential tool in seeing that your assets are handled how you prefer after your departure. Trusts are powerful tool that can be utilized to obtain more control over how wealth and belongings are transferred to future generations.
What a Trust Does
To take this point further, it is important to note that a trust is a legal document that includes instructions for how assets are to be given to beneficiaries after death. There are several types of trusts, each created to help obtain a certain goal. Many people consult with an estate planning professional for advice as to which kind of trust is in their best interest.
The Benefits of Establishing a Trust
Trusts help people preserve wealth, helps reduce estate taxes for married spouses, and ensures that retirement-related assets are distributed as you so wish. An effective trust is one that both reflects your preferences, in addition safeguarding your wealth until it lands in the hands of your loved ones. The benefits of establishing a trust include:
- Wealth can be easily and privately transferred to heirs. In some cases, assets go through what is called “probate”, which can delay loved ones from getting their fair share. Additionally, probate can be expensive and the process is public knowledge.
- Preserve assets for heirs and/or charities. Those with substantial assets may want to create an irrevocable trust in their lifetime (which means the grantor is not permitted to change the trust after being established). The benefit to this is that the grantor’s estate is minimally impacted by estate taxes, if at all.
- Building a legacy to pass on. Ultimately, the purpose of creating a trust can be emotional for many. It is imperative that people established a trust so what they have built in their lifetime is passed on to the loved ones who they want to have it.
- More control over how assets are distributed. Through setting up a trust, the grantor can write down their preferences for how they want their legacy to be passed on to the next generation (including both tangible and intangible assets). Those who want a portion of assets to go to a charity, can designated so in their trust.
- Ensure retirement assets are transferred as planned. A grantor may be worried that a beneficiary for a retirement account will liquidate it and accumulate a large income tax obligation for the year. To reduce that concern, limitations on withdrawals from the account can be enforced.
- Assets are kept in the family. If a surviving spouse remarries, assets could benefit the new family over the other loved ones. Those who are worried about this, can talk with an estate planning professional about how to include a qualified terminable interest property (QTIP) provision into their trust.